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Crypto Charts For Beginners: Understanding Candlestick Patterns

Anticipating market moves is the backbone of any trading strategy. Traders need to have an understanding of where the trend is heading, and if there are any signals that show that the trend is changing. Crypto charts are essential tools for beginners.

How to read crypto charts for beginners and apply the signals into automated trading strategies? Read more.

Crypto charts provide valuable insight into the trend of an asset. Reading properly specific patterns helps beginners improving the returns of their strategies significantly. Looking closely at a price on a crypto chart allows traders to fine-tune their trading system. There are several types of candlestick patterns. Recognizing them enables even beginner traders to get a better idea of the upcoming direction of the asset.

The best way to look at the crypto chart is to analyze the trend from a medium or long-term perspective. A chart set on a daily or weekly time frame is an ideal starting point before zooming in and taking more specific conclusions.

Chart patterns that form on higher time frames are much more reliable, and you can use them to start an automated trading strategy based on the signal provided.

Bullish Reversal Patterns

Hammer

The hammer is a 1-candle pattern

Characteristics to look for on the crypto chart:

  • Price closing at the top quarter of the range
  • The lower shadow is two or three times the length of the body
  • A hammer is a bullish reversal pattern that forms after a decline in price.

What does it exactly mean?

Once the market opened a large number of token holders sold, pushing the price down, however before the candle closed, buying momentum pushed the price back higher.

This momentum was so strong that the closing price finished above the opening price.

The hammer signifies a bullish reversal and shows that the buyers are coming in strong into the market.

Bullish Engulfing Pattern

Characteristics to look for on the crypto chart:

  • The first candle is bearish while the second candle is bullish.
  • The body of the second candle completely overwhelms and covers the first candle.

What does the pattern mean?

When looking at a crypto chart, this pattern shows that the seller’s momentum in the first candle was overtaken by buying power of the bulls, who then pushed the price up.

The pattern when printed on a crypto chart indicates that the trend is reversing and becoming bullish.

Morning Star

A morning star is a 3-candle bullish reversal pattern which forms after a decline in the price.

Characteristics to look for on the crypto chart:

  • The first candle is bearish in nature.
  • The second candle has an extremely small range.
  • The third candle exhibits an aggressive upwards momentum.

Why does it mean?

Sellers push down the price in the first candle, buying and selling power are even in the second candle, and in the third candle, Sellers are exhausted and buyers push the price up.

Observing the morning star pattern on a crypto chart, tells you that the sellers have been exhausted after fighting with the buyers and the market is now bullish.

Bearish Reversal Patterns

Shooting Star

The shooting star is a 1-candle bearish reversal pattern.

Characteristics to look for on the crypto chart:

  • Little to no lower shadow.
  • Price closes at the bottom quarter of the range.
  • The upper shadow is about double the length of the body

What does it mean?

There was a lot of buying pressure at the open of the market that pushed the price up, however before the candle close there was huge selling pressure pushing the price down.

This pattern when printed on the crypto chart signals a bearish reversal and shows that the selling pressure is strong in the market.

Bearish Engulfing Pattern

A Bearish Engulfing Pattern is a 2-candle bearish reversal candlestick pattern.

Characteristics to look for on the crypto chart:

  • The first candle is bullish.
  • The second candle is bearish and large enough to overtake the first candle.

What does it mean?

Buying momentum is in the first candle, but the selling pressure overwhelms and prints a lower low.

The Bearish Engulfing Pattern shows that the sellers have overwhelmed the buyers and are now have momentum.

Evening Star

An Evening Star is a 3-candle bearish reversal candlestick pattern.

Characteristics to look for on the crypto chart:

  • The first candle has a bullish close.
  • The second candle has a small range.
  • The third candle has a strong bearish close.

What does it mean?

We see that in the first candle buyers have more momentum, closing the candle with a higher price. This is followed by a candle where there are equal buying and selling pressure. Eventually, the bears take over and push the price down.

The Evening Star tells you the buyers are exhausted and the sellers are momentarily in control.

How to apply this into an automated trading strategy

How to read crypto charts for beginners and apply the signals into automated trading strategies? You can read more in this article to get more tips about how to set up properly your automated trading bot.

Understanding Candlestick patterns can be an excellent source of data for traders to build their strategies. This can then be utilized to pick the best strategy that would perform during these market conditions.

Bearish case

If a bearish pattern were to print, this would indicate a change in the trend and a possible correction in price. If we intend on using this data to create a strategy we would want to take advantage of short-term corrections. An optimal rule for this scenario can be seen below.

Bitcoin trading with bearish crypto chart

The rule sells all short-term price rebounds and then buys back at a lower price.

Read more about this strategy.

Thanks to such an approach, the strategy allows you to accumulate more of the coin on downtrends, leaving the portfolio in a perfect spot once the trend reverts.

Bullish case

If the crypto chart prints a bullish pattern, it may signal a new uptrend. The best strategy to take advantage of this scenario is to buy the dips.

Coinrule offers multiple trading strategies to buy the dips efficiently across all the opportunities the market may offer.

RSI strategy with bullish crypto chart

The RSI is one of the most useful technical indicators that traders use to catch dips on assets in downtrends.

The strategy above makes sure that the coin is in an uptrend (as the price trades above the Moving Average 100) and buys when the coin experiences a short-term dip.

Read more about this strategy.

You can also backtest this strategy using this trading script published on Tradingview.

What is Coinrule

Coinrule allows you to create trading rules that run automatically across your favourite exchanges.

With Coinrule you can easily develop your own trading rules and strategies and set them up to run automatically. It is the “if-this-then-that” for cryptocurrency trading that allows you to plan your crypto trading rather than having to sit for hours in front of charts. Best of all? No coding skills are required, meaning anyone can use Coinrule.

Sign up for a free trial: coinrule.com
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DISCLAIMER

I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.

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